"A dollar bill is a piece of paper - what's the difference between
that and another piece of paper?" asks Sholom Rosen of Citibank.
"It is the ability to present that piece of paper and get assurance
of a return. It's not backed. There was a time when it was backed, but
those times are gone. What gives it value? The banking system. The paper
is the liability of the banking system. The supply of money is grown and
disappears in the banking system."

Yet others seem to think that, if universally trusted, a digital currency
system can, in effect, float on its own momentum. "If you have money
on the network, you can make private money on the network," says Eric
Hughes, a co-founder of the privacy champions, the Cypherpunks. He is now
exploring the possibility of setting up a cyberspace bank. "It's
easiest not to turn the money into paper if you don't have to."

What security features will be included?

How will these systems protect against fraud? Can they be hacked or
counterfeited? What will be the trade-offs between ease-of-use and
security?

"People get sticky fingers," says Rosen. "The most honest
guy in the world will find some cash and stick it in his pocket. When
outsiders hear about digital-cash schemes, the first thing they say is,
'I'm going to break in.' "

Of course, smart cards have to be tamper-proof so people can't reverse
engineer them and double-spend. The prime protection is cryptography.
"The bits in a container have to move from one to the other,"
explains Rosen. "When you're done, you have to have less in one
container and more in the other. Also, your transaction can't be
intercepted. Crypto can secure the transition. How strong the crypto is
depends on who's going to try to break in - if it's the Mafia or a
national government, they'll have plenty of resources."

David Chaum thinks, for instance, that some canny dark-side entrepreneurs
can crack the Mondex system now being tested in England. Though its
mathematical protocols are strong, he says, too much depends on the
tamper-proofing of the cards. "One device can say, 'OK, I'm
transferring $100,000 to you,' and the other one says, 'Oh, fine, I
believe you.' So if you break either one of those open (defeating the
tamper-proof technology) and tell it you've got a zillion dollars, the
whole system just dies." (Mondex insists its scheme cannot be
cracked, but will not provide further details. "Suffice it to say
we're betting the shop on it," says Dave Birch.)

Will they work so the value will be restored if they're lost?

Everybody seems to agree that smart cards holding digital cash should
provide an option to punch in a Personal Identification Number before
buying something; but there is also a consensus that most people won't use
that option. "The consumer won't bother with that," says Visa's
Michael Nash. "The key here is that we imagine this as expanding what
you do with credit cards. We do not think the electronic purse is
appropriate for people buying jewelry or automobiles." In many
systems - Mondex is a good example - losing your stored-value smart card
is like losing a wad of bills. Don't carry more than you can afford to
lose.

Who's going to regulate electronic money?

At the moment, all the players are proceeding as if no one is. They
extrapolate a regulatory system growing out of the current one, while they
are aware that as the digital economy becomes pervasive there may be calls
for new limits and regulation. As for now, the rush is to get everything
in place, and no traffic cops seem to be slowing anybody down.

Who's going to pay for it?

"I don't believe that it's sound policy to charge somebody royalties
for engaging in the virtual world's equivalent of putting your hand in
your pocket, pulling out a bill, and handing it to somebody," says
Kawika Daguio. He is particularly perturbed by the claims of Online
Resources & Communications Corporation, a company in Virginia that
insists that it holds a patent (US # 5,220,501) giving it "exclusive
rights to process real-time electronic transactions of consumers who use
any in-home terminal to purchase goods and services, pay bills, and bank
through a debit network, including the automated teller machine
networks." Online Resources further claims that "the patent
covers all in-home terminals, including telephones, computers." (The
patent may be challenged by banks and ATM
processors.)